copy the linklink copied!46. Thailand
copy the linklink copied!Key facts on SME financing
In 2016, there were approximately 3.01 million SMEs in Thailand, which constituted 99.7% of all enterprises. They altogether contributed to 42.2% of the country's GDP and accounted for 78.5% of total private sector employment.
According to the criteria defined by the Ministry of Industry, SMEs are categorized by the number of employees and the value of total fixed assets (excluding land).
SMEs are able to access financing through commercial bank loans. In 2017, outstanding SME loans totaled THB 4 220 624 billion, representing 50.47% of all outstanding business loans. Furthermore, SMEs are able to source funds from other financial institutions, the capital market, crowdfunding and venture capital.
Some SMEs still face problems including collateral constraints and a lack of credit history, which limit their access to bank loans. Government policies have been put into place to address these constraints.
For example, the Thai Credit Guarantee Corporation (TCG) provides credit guarantees for viable SMEs to ensure that SMEs with insufficient collateral have access to bank loans.
Moreover, The Business Collateral Act B.E. 2558 (2015) simplified the process of security interest creation and expanded the types of collateral which SMEs can register and use to secure loans.
In addition, to boost SMEs’ financial access in a sustainable manner, the government has also launched capacity-building programmes to enhance SMEs’ competitiveness.
copy the linklink copied!SMEs in the national economy
There were approximately 3.01 million SMEs in Thailand in 2016, which altogether constituted 99.7% of all enterprises (see Table 46.2).
Over 41.7% of Thai SMEs are in the wholesale and retail sectors, followed by 39.6% in services, 17.3% in manufacturing, and 1.4% in agriculture (see Table 46.3). SMEs in Thailand accounted for 78.5% of all private sector employment (11.75 million people).
According to a Ministerial regulation issued by the Ministry of Industry in 2002, the definition and classification of SMEs is based on the value of companies’ fixed assets (excluding land) and number of employees (See Table 46.4)
copy the linklink copied!SME lending
Commercial bank lending to SMEs is significant. In 2017, outstanding SME loans totaled THB 4 220 624 billion representing 50.47% of all outstanding business loans. That year, the number of SMEs with loans from Thai commercial banks (not including specialised financial institutions) was 520 461.
SMEs can also obtain loans from specialised financial institutions, cooperatives, and other community-level financial institutions.
copy the linklink copied!Credit conditions
The credit quality of SME loans stabilised as the global and domestic economies gradually recovered, helping businesses recover their financial health. In 2017, SME non-performing loans remained stable at 4.37% compared to the 2016 level of 4.35%, but were nonetheless higher than the NPL rate among all businesses, which was 3.01%.
copy the linklink copied!Alternative sources of SME financing
SMEs in Thailand have access to alternative sources of funding such as the Market for Alternative Investments (MAI) exchange, crowdfunding, and venture capital.
The Market for Alternative Investments (MAI) is a stock exchange for smaller firms. It provides SMEs with a platform to raise capital at a lower paid-up capital than in the Stock Exchange of Thailand. Through the MAI exchange, SMEs can raise capital if they have over THB 50 million in paid-up capital following an IPO. In 2016, 150 companies were listed on MAI for a total market capitalisation of THB 339 billion.
Crowdfunding is another channel for SMEs to access funds. Under the supervision of the Securities and Exchange Commission, companies may raise funds from a pool of investors through equity-based crowdfunding.
Venture capital provides an opportunity for companies to access funding from investors, including financial institutions. Venture capital funds in Thailand benefit from certain tax privileges such as exemption from income tax. The Bank of Thailand revised its Regulations on Venture Capital and FinTech Businesses of Financially Consolidated Groups. The objectives of the revision were to increase unlisted companies’ access to alternative funding, especially for SMEs and FinTech firms, and to enhance effective development of financial services provided by financial institutions and conglomerates.
copy the linklink copied!Government policy response
SME access to commercial bank loans is constrained due to their general lack of credit history, collateral, and reliable financial statements. To tackle these limitations, the government has introduced various measures to ease SME access to funding. In addition, the government has launched capacity-building programmes to boost SMEs’ competitiveness.
For example, the Thai Credit Guarantee Corporation (TCG) was established to ease SMEs’ financial constraints by providing credit guarantees for viable small enterprises with inadequate collateral. In 2009, the TCG introduced the Portfolio Guarantee Scheme designed to stimulate bank loans to SMEs. Since then, there have been six Portfolio Guarantee Schemes as well as guarantee schemes for start-up SMEs and micro-entrepreneurs. The outstanding guarantee amount has increased over the years and totalled THB 353 billion at the end of 2017, guaranteeing 293 316 SMEs in TCG’s portfolio .
Another measure that has promoted SME access to finance is the Business Collateral Act B.E. 2558 (2015). Prior to the Act, lenders could create security interests over their borrowers’ property and movable assets to secure loans. However, borrowers had to physically deliver their pledged movable assets to the lender, which was operationally impractical for a number of reasons. The Act has allowed security interests to be created without the need to physically deliver assets and also expanded the types of collateral which SMEs can register and use to secure loans. Collaterals eligible to be registered as securities include receivables, inventory, and intellectual property. In conjunction, the Bank of Thailand has also revised several financial regulations. In particular, amendments have been made to regulations concerning asset classification, the provisioning of financial institutions, collateral appraisals, foreclosure procedures, credit guarantees and public auctions. All of these revisions have permitted more types of collateral to be used to secure loans and deducted from loan value prior to underwriting.
Various government agencies have also launched capacity-building programmes to boost SMEs’ competitiveness through skill development, product development, and market access. Initiatives have ranged from coaching programmes which enable knowledge transfers from capable enterprises and SMEs to local SMEs and international counterparts. In 2016, the Office of SME Promotion undertook 37 projects worth over THB 5 billion for promoting and supporting SMEs. As of March 2017, 23 projects had been completed, while 14 others were still ongoing. The results of the SMEs promotion activities in 2016 reflected the direction of SME promotion based on the Business Life Cycle. All projects were designed in response to the different needs of four groups (Startup Group, Strong and Regular Group, Turn-around Group, and Ecosystem Group), focusing on incentives aiming to develop and incubate start-ups, enhance productivity and innovation in SMEs, promote market access and internationalisation, and create a conducive legal ecosystem and infrastructure.
Furthermore, the SME One-Stop Service Center was established to gather SME data, provide free consultancy service regarding for example product development and financial management, and facilitate registration of SMEs. These initiatives are ongoing to provide continual knowledge and capital development to support SMEs.
There is also a government initiative to create a data ecosystem which allows data sharing and will be accessible to all stakeholders in order to support information-based activities including lending, this will offer more opportunities for SMEs to obtain credit.
References
Department of Business Development. (2015). Business Collateral Act B.E. 2558 (2015). Retrieved from Department of Business Development website: https://www.dbd.go.th/more_news.php?cid=1033&filename=law_secutran
Office of the Council of State. (n.d.). Ministerial regulation of The Ministry of Industry (2002). Retrieved from Office of the Council of State website: http://www.ratchakitcha.soc.go.th/DATA/PDF/00102303.PDF
Stock Exchange of Thailand. (2017). Market Statistics. Retrieved from Stock Exchange of Thailand website: https://www.set.or.th/th/market/market_statistics.html
Thai Credit Guarantee Corporation. (2017). Operating Performance. Retrieved from Thai Credit Guarantee Corporation website: http://www.tcg.or.th/aboutus_operating_performance.php
Thai Office of SMEs Promotion. (2017). Annual report 2016. Retrieved from Thai Office of Small and Medium Enterprises Office Promotion website: http://www.sme.go.th/upload/mod_download/รายงานประจำปี%20สสว.%202559_OSMEP%20Annual%20Report%202016-20171102231101.pdf
Thai Office of Small and Medium Enterprises Office Promotion. (2016). White Paper on Small and Medium Enterprises of Thailand 2015. Retrieved from Thai Office of Small and Medium Enterprises Office Promotion website: http://www.sme.go.th/en/download.php?modulekey=94
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